Using Joint Share Ownership Plans/Growth Share Plans Tax Efficiently

Where approved share option plans are inappropriate or unavailable, companies may instead want to consider creating specific arrangements that may still be tax effective as a means of rewarding employees. The most common arrangements are joint share ownership plans (JSOPs) or growth share plans (GSPs). These provide for the majority of any gain to be subject to CGT rather than income tax and NICs. However, unlike approved share option plans, the employer will not be entitled to a corporate tax deduction on gains made by the employees. Under a JSOP, an employee will acquire an interest in shares jointly with the trustees of an employee benefit trust. Very broadly, the employee will acquire the interest to the future value in the shares; the trustees of the EBT will acquire the residual interest. The market value of the employee's interest will have some value that will be subject to income tax and NICs but this should be much lower than the value of the shares themselves. Provided that the employee and employer have entered into a joint election to be taxed on the value up front, any gain should be subject to CGT. For unquoted companies, a similar economic and tax benefit can be achieved by establishing a GSP (essentially a new class of shares that have value on achievement of specific performance conditions or growth). You can see more on this in this article: Providing for employees tax efficiently